Success Tips for College Graduates (and Their Parents)

Graduating from college is a momentous occasion. You’ve accomplished a great deal throughout your years of education, so take time to be proud of yourself. But now you can expect dramatic changes after you graduate.

It can be overwhelming to navigate the changes to your life after graduation from college. You should keep living frugally, start saving money, start paying off debt, and even begin planning for retirement with a Roth IRA, to name a few.

Let’s take a look at these tips about life—and money—for college graduates and their parents.

New Graduates: Some Financial, Money and Career Advice for You

First of all, every college graduate should follow a few tried-and-true financial guidelines as they venture out of school and into the next phase of life.

Start Paying Off Credit Card Debt

If you have any credit card debt, you should begin to pay that off aggressively, preferably as soon as possible. Credit cards often carry some of the highest interest rates around, so any balance you keep will drastically increase the amount you’ll pay in the long run.

If you find that you can’t manage paying off your credit cards in full each month, it might be wise to quit using them entirely, unless it’s an absolute emergency. It’s good to learn the discipline of spending within your means, and if credit cards make it harder to do that, stop relying on them.

Pay off your remaining balances as quickly as you can. High-interest debt will seriously hold you back from all other financial goals and make it tough to get ahead.

Make a Plan to Pay Off Student Loan Debt

Student loan debt is often seen as “good” debt because you use it to further your education and career prospects. Plus, the interest rates tend to be lower than those of credit cards. However, you don’t want to keep them around forever, so make a plan to repay your student loans ASAP.

After graduation, you have a grace period of 6 months or so (sometimes 9 months), when you aren’t required to begin making loan payments yet. This is meant to give graduates time to find employment and get settled. But if you’re already making money, go ahead and start paying down your loan principal right away.

Find out the total amount you owe and your loan interest rate. Use online calculators to figure out how quickly you can pay off the loans. Pay attention to the interest: how much would you pay in total interest, based on various repayment schedules? Even during the grace period, interest begins to accrue on your loan balance; that’s one reason to pay it off promptly.

If you have credit card debt, then during your student loan grace period, by all means, focus on the credit card debt. But then figure out how you can work towards becoming completely debt-free.

The longer you are paying student loans, the less money you’ll have available from your paycheck to save and invest for the future. So do your best to focus on getting out of student debt as quickly as possible. It may be painful for a few years, but you’ll be so glad to get the debt off your shoulders.

Pay Off Debt App with Jackie Beck

Once you’re motivated to pay off your debt, you might need a little help with strategizing. The Pay Off Debt app with Jackie Beck lets you organize your debts and customize your debt payoff strategy. Whether you decide to use the debt snowball, debt avalanche, or another method you create, this app enables you to set everything up with ease.

With the Pay Off Debt app, you can examine different scenarios of how various payment amounts or methods will impact your timeline to debt freedom. An amortization table is provided for each debt balance, so you can view how much is going to principal versus interest.

Perhaps the app’s most valuable feature is its focus on motivation. It provides progress updates, space to add photos representing why you want to be debt-free, and a “Paid” icon to inspire you with each final debt payment.

Start an Emergency Fund and Savings Plan

Job security can be a fleeting thing. It’s not Mom and Dad’s responsibility to bail you out when you mess up or if you lose your job. So be sure to start saving money as soon as you can. Everyone needs an emergency fund to carry them through a job loss, a medical issue, a car repair, or other unexpected expenses.

It’s never been easier to set up a savings account—you can just do a quick Google search and find top online high-yield savings accounts. Signing up takes just a few minutes. Decide how much you can save every paycheck, and arrange to do it automatically.

Seriously, automation is the key here. Once you have your employment lined up, start figuring out how much you can save. It may depend on how much you’re making, but 15% would be a great goal to start with. Once you get a few months of work in, you may find that you can gradually bump up that savings percentage without even missing it.

Automating your savings means you set it up once and forget it. Pretend that money isn’t even there, and live on what’s left in your checking. Your savings will grow and soon you’ll have a solid emergency fund. Then you can even start saving for big life expenses and fun things.

Live Like a College Student

Between graduation, moving out, interviewing, starting employment, and more all in a short time period, this transition can be chaotic. One smart choice you can make right now, which you won’t regret, is to keep on living like a college student.

Resist the urge to increase your spending and succumb to lifestyle inflation. When you’re just starting out in the “real world,” it may be tempting to reward yourself and spend like crazy. But it’s smart to hold off on expensive choices this first year or two post-grad. You don’t need brand-new furniture or a luxury car or a fancy apartment right off the bat.

Don’t let people convince you that you’re not a true “adult” if you don’t start spending like crazy. The actual mature thing to do is manage your expenses and live within your means.

Keeping to the lifestyle of a broke college student after graduation will do great things for you. You’re already used to living a pretty frugal life anyway. Take this time to realize how little you actually need to get by and to be happy. There’s always time to upgrade your lifestyle later on.

The “broke college student” phase is also a great time to start paying off debt because you’re already living on a bare-bones budget. It’s much harder to scale back your lifestyle and spending later on, when you may have more responsibilities like a family to support.

Make a Budget

If you’ve never created or used a budget before, have no fear. There are many different ways to budget, but the essential thing is to make a plan for where your money will go each month.

If you have a set salary, budgeting is pretty simple. Just write down your income each month (old-school with paper and pen, or digitally). If your pay varies, just make your best guess on income. Next, write down how much you anticipate spending in all of the important categories.

Fixed expenses are pretty easy to calculate—those are bills like your rent, car payment, student loans once those kick in, etc. Other expenses are variable, like utilities and food, but you can usually estimate these fairly accurately. Then be sure to add in other typical spending categories like clothing and entertainment, but remember that these can be kept very frugal.

Total up how much you earn each month (minus taxes). Total up how much you expect to spend each month, then compare the two figures. If you’ve got income left to spend, figure out where that can go, whether it’s to savings or something else where you’d like more wiggle room.

However, if you’re short on money by the end of the month, you need to figure out areas where you might cut your spending. Again, this is where living like a college student can be helpful. Try out frugal tips for eliminating unnecessary or wasteful spending.

It’s important to keep in mind that budgeting is imperfect and ongoing. Your funds may vary month to month, and how well you stick to the budget may vary as well. Just be sure to review your budget each month and make adjustments for the next month.

New Graduates: Making the Transition from College to Workforce

Much of what we’ve mentioned already is important in the college-to-workforce transition. You know you should keep living frugally, start saving money, and start paying off debt.

Of course, there is so much advice floating around when you graduate from college. It may be confusing to discern which parts of that advice applies to your particular situation.

Older adults in your life really do have your best interests at heart, and often they’ll frame advice as what they wish they’d done differently. They’re trying to spare you the pain they went through due to financial and career mistakes.

Here’s some financial and career advice for several common post-grad situations.

If You Don’t Have a Job Yet

This can be really scary! Some people are lucky and already have a job lined up before graduation day. But what if you don’t have a job yet, and you don’t know what to do next?

First of all, try to relax, but don’t turn to retail therapy or something financially foolish. You want to keep a level head and make smart decisions even while you’re anxious about the job search.

Focus on your job search. Spruce up your resume, talk to career experts or a career coach, and pound the pavement to find the right job for you.

As said before, minimize your expenses. If you’re not sure when you might find work, consider living at home temporarily to save money. You might keep eating Ramen for a few months to save on food costs. Give up your car if you don’t need one. Look for whatever ways you can find to cut expenses.

Find some sort of work. Remember, your first job out of college doesn’t have to be “the” job. Most people change jobs, even career fields, multiple times throughout their career. Some jobs will be temporary, and it’s okay to take something just to pay the bills as you keep searching.

If You’re Working an Interim Job

Again, there’s nothing wrong with an interim job—whatever will help you manage your financial responsibilities while you look for a better job. Don’t feel ashamed of taking a job that doesn’t ignite your passion; you just need to pay the bills.

As always, trim your budget and live frugally. An interim or temporary job likely isn’t bringing in a big salary, so keep things simple and limit your spending.

Save a little bit, no matter how small. You might not be ready for investing yet, so just focus on building up a starter emergency fund and getting yourself in the habit of saving. That’s the only way you can eventually stop living paycheck to paycheck.

Finally, even if you don’t love your current job, do it with excellence and pride. It’s always important to be a good employee. That means showing up on time, working hard, and making yourself valuable and trustworthy. That extra effort could mean a glowing recommendation in a few months, helping you land a better job in the future.

If You’re Launching Your Career

Maybe you’re graduating with a fabulous job offer in hand, and you’re ready to launch your career! Congratulations! Celebrate and be proud of that accomplishment.

Now, be responsible and set up plans for your money. You’ll want to start right away with budgeting, allowing yourself room to pay off debt, save money, and invest for retirement.

Even with a great job and a nice salary right out of the gate, it still is wise to hold off on major spending for a few months. Limit your spending, especially on luxuries, while you transition into your new job.

Remember that many companies operate under a “last hired, first fired” approach, so when you’re new, you’re more vulnerable to potential layoffs. So do an awesome job for your employer and be conservative in your spending, at least for a few months or a year.

Make a spending plan, or a budget, so you can ensure you meet all of your obligations and save for the future. Try not to inflate your lifestyle too much too quickly, but keep your expenses reasonable.

Start investing towards retirement right away. How much you can invest depends on how much debt you have, but you should go ahead and set up a 401(k) and possibly a Roth IRA as well. Certainly, if you’re eligible for a 401(k) with a company match, start investing enough to receive the full match as soon as you can.

Open a 401(k)

The 401(k) is an amazing tool we can use in the U.S. to prepare for retirement. Not everyone is eligible for one, but if you are, one of the best pieces of financial advice for new graduates is to open a 401(k).

The 401(k) is a great hub of any retirement plan. Employers in certain fields, like education, may provide a 403(b), which works similarly to a 401(k). Whatever your job is, it’s a good bet to start investing a portion of every paycheck into one of these accounts.

When interviewing for jobs, one key question you need answered is whether they offer a 401(k) plan. If they do, find out if you’ll be automatically enrolled or if you need to initiate that yourself.

This is a priority, but be sure to focus more of your income on debt repayment and saving an emergency fund at first. But even if you can only spare $5 a paycheck for a while, it’s still smart to set up a 401(k) as soon as you can.

Why? Because establishing the habit of investing is crucial. Once you have an account started, it’s very easy to gradually increase your contributions along with your income.

Another key motivation for starting a 401(k) is for the tax benefits. These accounts reduce your tax liability (your contributions are tax-deductible). In 2020, employees can contribute up to a maximum of $19,500 to a 401(k). The money is subject to federal tax when you withdraw it, but it can grow for decades tax-free.

Of course, the benefit of 401(k)s you’ve probably heard about is the employer match! If you’re among those fortunate enough to have an employer-sponsored match, you absolutely should take advantage of it. You invest a portion of your income directly into the account, and your employer matches it up to a certain amount, often around 6%.

If you can’t quite afford to put away enough to reach their maximum match, start with a smaller amount and increase your percentage of contributions at least until you can earn their top match. This match is essentially free money, so you don’t want to leave it on the table.

Open a Roth IRA

Another great option for retirement savings is a Roth IRA. If you’re earning income and don’t have a bunch of credit card debt to worry about, it’s time to open a Roth IRA. In 2020 you can contribute up to $6,000 of your pay to a Roth IRA.

Let’s imagine that you put $5,000 a year into a Roth, right off the bat from age 22. You continue investing the same amount for the next 40 years at just a 6% rate of return. When you retire at age 62, you’ll end up with over $820,000 in the account (after having only put in $200,000 of your own money)!

That’s a fairly conservative estimate, too. You might save the maximum amount per year, which would increase quite a bit over the course of your working career. The rate of returns can vary. But you can see how time is on your side; that’s why starting your retirement fund early is so crucial.

Clean Up Your Online Presence

A good piece of career advice for new college grads is to examine your online presence. You may have done an inventory of your online presence during your college application process, but that’s been four or five years now. You should take a couple of hours to clean up your online presence for potential employers, landlords, and others who may have influence on your life.

This simply means taking stock of things like your social media history. What sorts of things are on the record in your social media accounts? You may need to close out those accounts if possible, or go through and weed out any harmful information (stuff you wouldn’t want your grandma, or a potential employer, to know).

Get yourself a professional email address, if you haven’t already done so. This sends a message to anyone you connect with, and you want that message to be a positive one.

Parents: How You Can Best Help Your New Graduates

If you’re a parent of a young adult who has recently completed their college degree, congratulations! Give yourself a pat on the back. Parental support is a huge factor in helping a child succeed throughout their education.

Now, as a proud parent, you may wish to bestow an awesome gift on your grad, and that’s a wonderful sentiment. But be careful not to waste money on a gift that will quickly be forgotten. Check out these suggestions of ways to best help a new graduate.

Some of these are intangible gifts, and they can have a major impact on your child long after the graduation ceremony. These gift ideas may apply to others besides parents—relatives, godparents, and family friends might want to pitch in as well.

Clear Boundaries

Nope, you can’t wrap this one up with a bright shiny bow. But setting clear boundaries after your student nabs their diploma will be a great gift.

You’ve got to establish a new set of boundaries that fit your family’s circumstances. You’re still a parent and always will be. But your role will change after your child has graduated college.

Hopefully, you already loosened the reins when Junior went away to college. But now that your child has graduated, another step in the shift of dynamics will take place. You can offer advice, but you’re not in charge anymore.

No matter what decisions your child is making, it’s important to recognize that he or she is a capable adult.

Allowing your child to move back home temporarily can be an awesome gift. Many new graduates move in with Mom and Dad after commencement, perhaps for just the summer, perhaps for even a full year.

If you and your graduate decide that their living with you is the right plan, it’s essential to set clear boundaries. Establish some ground rules. What do you expect your graduate to contribute to the household? They should contribute something, whether in the form of rent, chores, or other assistance. How can they expect you to treat them? Remember they’re an adult now, so you have to find mutual respect.

When your college grad does move back home, it’s generally a good idea to plan on it being a temporary situation, maybe a few months to a year, just to help them find work and save up some extra money. There’s nothing like standing on your own two feet, after all.

Professional Clothing

Many graduates are heading off into the corporate world for their first real job. A fantastic gift that actually helps graduates is a professional suit for interviews or a first job.

Some students are in the habit of living in athletic gear 24/7. You might take your graduate shopping and even to a tailor to purchase a suit or other professional wear that will fit perfectly. It’ll be a great gift to help bolster their self-confidence as they begin interviewing for job positions. First impressions matter, and a great first impression improves their chances of getting hired.

Budgeting Help

For many of us, budgeting conjures up ideas of stress and anxiety. As a trusted adult in the graduate’s life, you can likely offer up some assistance with budgeting.

This might be as simple as purchasing a great personal finance book or online course as a gift. Or sit down with them a few times to discuss their potential budgeting plans and help them through the process—especially if they’ve never tried budgeting before.

Lunch With an Influencer

A neat gift idea for a new college graduate is to arrange a meeting, such as a luncheon, with someone with connections or influence within their chosen career field.

Many graduates go through their entire college career without ever sitting down with someone who actually works in their potential career field. You could really make an impact by putting your student in touch with a professional to share their experiences. Help them set up the meeting, pay for lunch, and let your student learn from all this influencer’s wisdom.

The Gift of Financial Planning

We all know how vital it is to create a solid plan for your finances and start saving for retirement as early as possible. While many 22-year-olds are not quite ready or interested in hearing it, adults should still make the effort to offer them guidance. Helping them plan out their finances is one of the best gifts that actually helps new graduates.

Perhaps you could simply have a few focused conversations with your graduate about their plans for the future. What long-term goals do they hope to accomplish? How can you help them to get there?

If you know of a fantastic financial advisor, this might be the perfect time to introduce him or her to your graduate. Give this young adult in your life a great start by showing them the ropes of financial planning.

Matching Retirement Contributions

Here’s another possibility for a smart and useful graduation gift: match their retirement contributions for a certain amount of time. While you are not allowed to contribute directly to another person’s 401(k) or IRA (unless you’re married to that person), that wouldn’t stop you from contributing—in cash.

For six months or a year, you might offer a matching cash incentive to the graduate. In other words, whatever amount they put away in a retirement account during that time, you set aside the same amount for them in a high-interest savings account. Then, at the end of that time period, you can transfer the stash (including interest) to the recipient.

While a new graduate probably won’t be putting away huge chunks of their first paychecks (especially if they have hefty student loans to repay), your gift could teach them the habit of investing in retirement. This way, they don’t get used to taking home their full paycheck and they get a running start into a great retirement plan.

One caveat: make sure to be aware of the current gift tax and the annual limit. Giving above the annual limit—which is currently $15,000—means the excess may be subject to federal taxes. You might stipulate to your graduate that you’ll match their contributions up to a certain amount. You wouldn’t want to get into an awkward situation if they invested far above the amount you’re prepared to give!

Pay Car Insurance or Other Large Expense Temporarily

If you’d like to assist your graduate in another manner, this might be another fun way to designate a cash gift. Offer to pay their car insurance premium. Or maybe help them with the security deposit on their first apartment. You could also make a gift of their first several months of student loan payments.

Whatever you think would be appreciated the most by your graduate, why not offer a gift towards one of these large expenses? Yes, you could also just write a check for any amount you like and assume it’ll be put to good use. But most of us enjoy giving gifts that are a little more specific, which is why it’s neat to make one of these kinds of monetary gifts to a new grad.

Wishing Graduates the Best

College graduation is an awesome accomplishment. But the transition from college to full adulthood and employment can be a rocky one.

Following these strategies and guidelines can help you as a new graduate. Getting on solid financial ground will pay off big-time as you move into your career and the next chapters of your life.

What other advice do you have for graduates? Share them in the comments below.

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon.

He created Part-Time Money® back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence.

Comments

I totally agree with your first advice. Living like you are still in college lets you stay in a track where you can save more money and not spend more money than what is necessary. A plan to pay your debt is also a good one.

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The content of Part-Time Money® is for general information purposes only and does not constitute professional advice. Visitors to ptmoney.com should not act upon the content or information without first seeking appropriate professional advice.